1. Offences by Company
1.1 Proper and smooth functioning of all business transactions,
particularly of cheques as instruments primarily depends upon the
integrity and honesty of the parties. Undoubtedly, dishonour of a cheque
by the bank causes incalculable loss, injury and inconvenience to the
payee and the entire credibility of the business transactions within and
outside the country suffers a serious setback. A company being an
artificial person created by law acts through its directors and officers
who are responsible for the conduct of the business of the company. A
criminal liability on account of dishonour of cheque primarily falls on
the drawer company and is extended to officers of the Company. The normal
rule in the cases involving criminal liability is against vicarious
liability, that is, no one is to be held criminally liable for an act of
another. This normal rule is, however, subject to exception on account of
specific provision being made in statutes extending liability to others.
Section 141 of the Negotiable Instrument Act,1881 (“NI Act”) regulates
offences by companies.

1.2 The Act has created a deemed offence under a legal fiction, whenever a
cheque drawn by a person on an account maintained by him bounces either
for insufficiency of the funds in the account or it exceeds the
arrangements made. It is apparent that the person who has drawn the cheque
on an account maintained by him alone is liable in the event of bouncing
of the cheque later. When the company is the drawer of the cheque, such
company is the principal offender, and the remaining persons are made
offenders by virtue of the legal fiction created by the legislature as per
the said section. The actual offence should be committed by the company
and then alone the other two categories would also become liable for the
offence.[1] Penal statues provide constructive vicarious liability and
should be construed much more strictly. When conditions are prescribed for
extending such constructive criminal liability to others, the Courts will
insist upon strict literal compliance. There is no question of inferential
or implied compliance.

1.3 In this Article, with the assistance of latest decisions of the
Hon’ble Supreme Court of India, we shall be examining the provisions
relating to section 141(1) and shall attempt to determine who are the
persons who shall be responsible and can be made liable for an offence
done by a company? Who is responsible to the company for the conduct of
its business, and who could be said to be in-charge thereof? How does one
identify such persons? Is it that a person by virtue of being a director,
manager or secretary of a Company automatically becomes liable under this
section? Is it necessary to have an averment in the complaint that at the
time when this offence was committed, such a person was in charge of and
was responsible to the company for the conduct of business of the company?

2. Provision
2.1 Section 141 of the NI Act, 1881 regulates offences by Companies. It
reads as follows
(1) If the person committing an offence under section 138 is a company,
every person who, at the time the offence was committed, was in charge of,
and was responsible to the company for the conduct of the business of the
company, as well as the company, shall be deemed to be guilty of the
offence and shall be liable to be proceeded against and punished
accordingly:
Provided that nothing contained in this sub-section shall render any
person liable to punishment if he proves that the offence was committed
without his knowledge or that he had exercised all due diligence to
prevent the commission of such offence.
(2) Notwithstanding anything contained in sub-section (1), where any
offence under this Act has been committed by a company and it is proved
that the offence has been committed with the consent or connivance of, or
is attributable to, any neglect on the part of any director, manager,
secretary or other officer of the company, such director, manager,
secretary or other officer shall also be deemed to be guilty of that
offence and shall be liable to be proceeded against and punished
accordingly.

Explanation. - For the purposes of this section, -
(a) 'Company’ means any body corporate and includes a firm or other
association of individuals; and
(b) 'Director’ in relation to a firm, means a partner in the firm."

2.2 When a cheque issued by a company is dishonoured.
In addition to the Company, the following persons are deemed to be guilty
of the offence and shall be liable to be proceeded against and punished:
a. Every person who at the time the offence was committed, was in-charge
of and was responsible to the company for the conduct of the business of
the company;

b. Any Director, Manager, Secretary or other officer of the company with
whose consent and connivance, the offence under section 138 had been
committed; and

c. Any Director, Manager, Secretary or other officer of the company whose
negligence resulted in the offence under section 138 being committed by
the company

3. Analysis
3.1 Section 141 contains conditions, which have to be satisfied before the
liability can be extended to officers of a company. Since the provision
creates criminal liability, the conditions have to be strictly complied
with. The conditions are intended to ensure that a person who is sought to
be made vicariously liable for an offence of which the principal accused
is the Company, had a role to play in relation to the incriminating act
and further that such a person should know what is attributed to him to
make him liable.

3.2 The key words which occur in the Section are "every person". These are
general words and take every person connected with a company within their
sweep. Therefore, these words have been rightly qualified by use of the
words " who, at the time the offence was committed, was in charge of and
was responsible to the company for the conduct of the business of the
company, as well as the company, shall be deemed to be guilty of the
offence etc." What is required is that the persons who are sought to be
made criminally liable under Section 141 should be at the time the offence
was committed, in charge of and responsible to the company for the conduct
of the business of the company.

3.3 Every person connected with the company shall not fall within the
ambit of the provision. It is only those persons who were in charge of and
responsible for conduct of business of the company at the time of
commission of an offence, who will be liable for criminal action. It
follows from this that if a director of a Company who was not in charge of
and was not responsible for the conduct of the business of the company at
the relevant time, will not be liable under the provision. The liability
arises from being in charge of and responsible for conduct of business of
the company at the relevant time when the offence was committed and not on
the basis of merely holding a designation or office in a company.
Conversely, a person not holding any office or designation in a Company
may be liable if he satisfies the main requirement of being in charge of
and responsible for conduct of business of a Company at the relevant time.
Liability depends on the role one plays in the affairs of a Company and
not on designation or status. If being a Director or Manager or Secretary
was enough to cast criminal liability, the Section would have said so.
Instead of "every person" the section would have said "every Director,
Manager or Secretary in a Company is liable"....etc. The legislature is
aware that it is a case of criminal liability which means serious
consequences so far as the person sought to be made liable is concerned.
Therefore, only persons who can be said to be connected with the
commission of a crime at the relevant time have been subjected to
action.[2]

3.4 The Supreme Court in various cases held that the words was in-charge
of, and was responsible to the company for the conduct of the business of
the company refer to a person who is in overall control of the day-to-day
business of the company. The Court pointed out that, though a person may
be a director and, thus, belongs to the group of persons making the policy
followed by the company, yet may not be in-charge of the business of the
company; that a person may be a manager who is in-charge of the business
but may not be in overall charge of the business; and that a person may be
an officer who may be in-charge of only some part of the business It is,
however, observed by the Supreme Court that the words in section 141(1) of
the Act need not be incorporated in a complaint as magic words. But, at
the same time, the substance of the allegations read as a whole, should
answer and fulfil the requirements of the ingredients of the said
provision.[3]

3.5 If a mere reproduction of the wording of section 141 (1) in the
complaint is sufficient to make a person liable to face prosecution,
virtually every officer / employee of a company without exception could be
impleaded as on accused by merely making an averment that at the time when
the offence was committed he was in-charge of and was responsible to the
company for the conduct and business of the company. This would mean that
if a company had 100 branches and the cheque issued from one branch was
dishonored, the officers of all the 100 branches could be made accused by
simply making an allegation that they were in-charge of and were
responsible to the company for the conduct of the business of the company.
That would be an absurd thing and not intended under the Act. As the
trauma, harassment and hardship of a criminal proceedings in such cases,
can be more serious than the ultimate punishment, it is not proper to
subject all and sundry to be impleaded as accused in a complaint against a
company, even when the requirements of section 138, read and section
141,are not fulfilled.[4]

3.6 There is no universal rule that a director of a company is in charge
of its everyday affairs. There is no magic as such in a particular word,
be it Director, Manager or Secretary. It all depends upon respective roles
assigned to the officers in a company. A company may have Managers or
Secretaries for different departments, which means, it may have more than
one Manager or Secretary. These officers may also be authorised to issue
cheques under their signatures with respect to affairs of their respective
departments. Will it be possible to prosecute a Secretary of Department-B
regarding a cheque issued by the Secretary of Department-A which is
dishonoured? The Secretary of Department-B may not be knowing anything
about issuance of the cheque in question. Therefore, mere use of a
particular designation of an officer without more, may not be enough by
way of an averment in a complaint.[5]

3.7 A provision similar to Section 141 of the NI Act can be found in
several enactments dealing with offences by companies i.e. section 278 B
of the Income-Tax Act, 1961; section 22 C of the Minimum Wages Act, 1948;
section 86 A of the Employees State Insurance Act, 1948; section 14 A of
the Employees Provident Fund and the Miscellaneous Provisions act, 1952;
section 29 of the Payment of Bonus Act, 1965; section 40 of the Air
(Prevention and Control of Pollution) Act, 1981 and section 47 of the
Water (Prevention and Control of Pollution) Act, 1974; but neither section
141 (1) nor the pari materia provisions in other enactments give any
indication as to who are the persons responsible to the company, for the
conduct of the business of the company.

3.8 To decipher and understand the meaning of the “persons in charge’ as
defined in section 141(1) of the NI Act, we may have to examine the
provisions of Companies Act, 1956, the law relating to and regulating the
companies. A company, though a legal entity, yet can act only through its
board of directors. Section 291 of the Companies Act, 1956 provides that
subject to the provisions of this Act, the board of directors of a company
shall be entitled to exercise all such powers, and to do all such acts and
things, as the company is authorized to exercise and do. A director may be
attending meetings of the Board of Directors of the Company where usually
they decide policy matters and guide the course of business of a company.
It may be that a Board of Directors may appoint sub-committees consisting
of one or two directors out of the Board of the Company who may be made
responsible for day-to-day functions of the Company. These are matters,
which form part of resolutions of Board of Directors of a Company. Nothing
is oral. What emerges from this is that the role of a director in a
company is a question of fact depending on the peculiar facts in each
case. There is no universal rule that a director of a company is in charge
of its everyday affairs.

3.9 A visit to some provisions of Companies Act,1956 shall enable us to
appreciate the role and functions of certain key managerial personnel as
engaged by companies.
a. "Director" includes any person occupying the position of director, by
whatever name called. Section 2(13)

b. "Manager" means an individual (not being the managing agent) who,
subject to the superintendence, control and direction of the Board of
directors, has the management of the whole, or substantially the whole, of
the affairs of a company, and includes a director or any other person
occupying the position of a manager, by whatever name called and whether
under a contract of service or not. Section 2(24)

c. "Managing director" means a director who, by virtue of an agreement
with the company or of a resolution passed by the company in general
meeting or by its Board of directors or, by virtue of its memorandum or
articles of association, is entrusted with substantial powers of
management which would not otherwise be exercisable by him, and includes a
director occupying the position of a managing director, by whatever name
called provided. Section 2(26)

d. "Officer" includes any director, manager or secretary, or any person in
accordance with whose directions or instructions the Board of directors or
any one or more of the directors is or are accustomed to act. Section 2
(30)

e. "Secretary" means a Company Secretary within the meaning of clause (c)
of sub-section (1) of section 2 of the Company Secretaries Act, 1980 (56
of 1980) and includes any other individual possessing the prescribed
qualifications and appointed to perform the duties which may be performed
by a secretary under this Act and any other ministerial or administrative
duties [Section 2(45)

3.10 A combined reading of section 5 and 291 of the Companies Act read
with the definitions in clauses (24), (26), (30), (31) and (45) of section
2 of that Act would show that the following persons are considered to be
the persons who are responsible to the company for the conduct of the
business of the company:-
a. the managing director/s;
b. the whole-time director /s;
c. the manager
d. the secretary;
e. Any person in accordance with whose directions or instructions the
board of directors of the company is accustomed to act;
f. Any person charged by the board with the responsibility of complying
with the provisions (and who has given his consent in that behalf to the
board); and
g. Where any company does not have any of the officers specified in
clauses (a) to (c), any director or directors who may be specified by the
board in this behalf or where no director is so specified is so specified,
all the directors.

3.11 The Supreme Court summarized the position under section 141 of theNI Act as follows
i. If the accused is the managing director or a joint managing director,
it is not necessary to make an averment in the complaint that he is
in-charge of and is responsible to the company for the conduct of the
business of the company. It is sufficient if an averment is made that the
accused was the managing director or joint managing director at the
relevant time. This is because the prefix ‘managing’ to the word
‘director’ makes it clear that they were in-charge of and were responsible
to the company for the conduct of the business of the company.

ii. In the case of a director or an officer of the company who signed the
cheque on behalf of the company, there is no need to make a specific
averment that he was in-charge of and was responsible to the company, for
the conduct of the business of the company or make any specific allegation
about consent, connivance or negligence. The very fact that the
dishonoured cheque was signed by him on behalf of the company, would give
rise to responsibility under sub-section (2) of section 141.

iii. In the case of a director, secretary or manager (as defined in
section 2 (24) of the 1956 Act) or a person referred to in clauses (e) and
(f) of section 5 of 1956 Act, an averment in the complaint that he was
in-charge of and was responsible to the company, for the conduct of the
business of the company is necessary to bring the case under section 141
(1) of the 1881 Act. No further averment would be necessary relating to
consent and connivance or negligence in the complaint to bring the matter
under that sub-section.

iv. Other officers of a company cannot be made liable under sub-section
(1) of section 141; they can be made liable only under sub-section (2) of
section 141, by averring in the complaint their position and duties in the
company and their role in regard to the issue and dishonor of the cheque,
disclosing consent, connivance or negligence. [6]

4. To sum up, there is almost unanimous judicial opinion that necessary
averments ought to be contained in a complaint before a person can be
subjected to criminal process. A liability under section 141 of the Act is
sought to be fastened vicariously on a person connected with a company,
the principal accused being the company itself. It is a departure from the
rule in criminal law against vicarious liability. A clear case should be
spelled out in the complaint against the person sought to be made liable.
Section141 of the Act contains the requirement for making a person liable
under the said provisions. That the respondent falls within the parameters
of section 141 has to be spelled out. A complaint has to be examined by
the Magistrate in the first instance on the basis of averments contained
therein, If the Magistrate is satisfied that there are averments which
bring the case within section 141, he would issue the process. Merely
being described, as a director in a company is not sufficient to satisfy
the requirement of section 141. Even a non-director can be liable under
section 141 of the Act. The averments in the complaint would also serve
the purpose that the person sought to be made liable would know what is
the case, which is alleged against him. This will enable him to meet the
case at the trial.

4.1 The scheme of the Act, therefore, is that a person who is responsible
to the company for the conduct of the business of the company and who is
in-charge of business of the company is vicariously liable by reason only
of his fulfilling the requirement of sub section (1) of section 141; but
if the person responsible to the company for the conduct of business of
the company, was not in-charge of the conduct of the business of the
company, then he can be made liable only if the offence was committed with
his consent or connivance or was as a result of his negligence.